I recently had the honour of presenting at the annual CSCMP (Council of Supply Chain Management Professionals) conference in San Antonio, Texas. Choosing a topic can always be a challenge but in this case I had a particular theme in mind that I felt worthy, particularly in the face of industry change prevalent today. That topic is how visibility helps solve the ongoing problem of disconnected planning processes.
We have all heard that those who ignore history are doomed to repeat it. That applies to supply chain operations as well. If we don’t learn from what is happening day-by-day in our supply chains, we are doomed to repeat disconnected planning processes that lead to mismatches between supply and demand. These mismatches are costly and can lead to service problems such as out-of-stocks and over-stocks.
But with fires to fight every day, it’s hard for supply chain managers to find time to apply the lessons of the past to better plan for the future. They need technology help from an integrated set of supply chain visibility, planning and execution solutions to optimally re-plan fulfillment impacted by a natural disaster; shift inventory to account for regional demand variations; or re-plan transportation to accommodate new priority shipments.
Improving supply chain operations must start with supply chain visibility. Without visibility to what is happening in the supply chain, planning is based on old norms rather than on current realities. As a result, managers are forced to react manually to changes and disruptions that come their way. And manual adjustments are usually not optimal.
Supply chain visibility gives forecasting systems current, relevant information on which to accurately forecast what demand will be at the point of consumption. Visibility alone has only marginal value, however. That’s why early standalone visibility systems never prospered. Visibility solutions must be integrated with planning and execution systems to create real value by more accurately positioning inventory to match expected sales, and to enable immediate reaction when disruptions occur. This closed-loop visibility—planning—execution process creates supply chains that are more cost effective, provide better customer service, and are more profitable.
Supply chain visibility traditionally concerns inventory and supply disruptions. While this is important, it doesn’t allow supply chain operations to learn from history. That comes from demand-side visibility. Visibility to demand—what is selling on a day-by-day basis—provides feedback to forecasting that enables a better understanding of what is happening on the street. This allows planning systems to create and adjust plans to more accurately match inventory, labor and transportation to forecasted demand at the point of consumption.
Thus, there are two sides to supply chain visibility—the demand side, which more accurately matches inventory to demand, and the supply side, which provides real-time information to alert execution operations to supply chain changes and disruptions. This creates a continuous learning process for iterative planning and execution.
Traditional planning processes can’t understand and respond to today’s constant, rapid-fire changes in customer demand. Analytics have been added to provide feedback into the planning process. But this is often too slow to adequately react to daily demand shifts, and usually is not connected to execution systems to enact needed changes.
Iterative planning and execution is different. It continuously self-adjusts. This process receives visibility to daily item-level sales to forecast future demand, create inventory plans, and pass the plans to execution. Execution systems receive real-time visibility to supply chain changes and disruptions so immediate adjustments can be made. These execution changes are passed back into the planning process so they can be considered in future planning. The iterative nature of this process allows plans to continuously improve the accuracy of the planning process to narrow the gap between forecast and actual demand.
One important consideration when using supply chain visibility to inform iterative planning and execution processes is the need to separate the relevant, impactful information from red herrings. Otherwise the data can lead to inappropriate decisions. For example, a spike in demand caused by a promotion is very relevant, while an apparent spike in demand caused by an accident may not be.
Thus, iterative planning and execution processes must be able to filter causal information from the outliers and background noise to provide actionable visibility. Actionable visibility allows iterative planning and execution to profitably react to shifts in demand, new priority orders, customer order changes, supply chain disruptions and other changing conditions to adjust fulfillment strategies and capabilities, re-plan transportation, or modify DC capacity.
Obviously, there is a lot going on in an iterative planning and execution process with real-time visibility to supply and demand. A command and control process is needed to monitor and direct this action and act as a traffic cop to direct execution across the entire distribution network to profitably fill orders while meeting service commitments. These decisions must be based on time-phased visibility to inventory and allocations at all locations, factoring in labor availability and transportation costs. Command and control should also consider inventory balancing, product lifecycles and product rotation rules.
Because this iterative process is driven by real-time visibility, profitable promising decisions are also iterative. Visibility to changes initiates a re-promising process so execution will be as profitable as possible given the new conditions. This produces the most efficient and profitable solutions while improving customer service.
Today’s markets are in constant motion. Change is non-stop. No matter how good your planning is, no matter how efficient your execution is, without visibility to what is happening upstream and downstream, you’re flying blind. With visibility, you can make better decisions that more accurately position inventory to match demand. Attach visibility to iterative planning and execution and the system will provide optimal decisions on a continual basis to reduce supply chain costs, improve service and increase profitability.